Tag Archives: investment advice

Exposing The Dark Side of Personal Finance

USA EconomyMy Comments: In keeping with the prevailing assumption that anything you see on TV or read on the internet is gospel, financial planners are constantly trying to undo the “lessons” taught by certain celebreties who are more interested in selling books than they are in providing good information.

Whenever I’ve attended regional meetings with hundreds of other advisors, and someone deliberately or accidentally mentions some of the well known names referred to here, there is a collective groan from the audience.

The following comments come from a Brian J. Kay, the Executive Director of a company called Leads4Insurance.com. He talks about a video and interview with Helaine Olen, author of the book “Pound Foolish: Exposing the Dark Side of the Personal Finance Industry.” Here is what he wrote:

The interview – and her book for that matter – really sticks to it the talking heads of the personal financial industry such as Suze Orman and Dave Ramsey.

First, she calls out Orman for suggesting that people put all their savings in the stock market, a strategy Orman does not employ to her own finances out of concerns for stock market volatility.

More broadly, Olen objects to the idea that one person can give blanket advice to millions of viewers and readers.

“The idea that anybody can give specific advice to millions of people… it doesn’t really work. We’re all specific. We are not archetypes,” Olen said. Bingo.

Every person has a different income than the next. Different needs embedded in their tightly woven budgets. Different plans for retirement. Different levels of comfort with savings and investing.

And it should be mentioned that all those talking heads are millionaires. It’s much easier for them to say, “Paying down all your debt is your number one priority” when they can immediately do so with the change in their couch cushions.

Real people are living under the economic pressure that hasn’t seemed to let up on those living and working on the ground level of our economy. They rely on credit for medical emergencies, unexpected repairs to their cars and homes, or to help them get through a long drought of unemployment.

Though I am not a big fan of her financial recommendation to “always buy indexed funds,” I strongly agree with her assertion that our financial problems stem from a culture that avoids having frank conversations about debt and savings.

If you are like me and can’t standing seeing flocks of people led astray by these “experts,” take solace in knowing that you provide an antidote to our culture’s financial problems.

By that, I meant that you provide honest, frank discussions with clients about their personal finances, savings and debt. You provide personalized financial advice to them for their – and only their – situation.

Not only do you provide that ideal financial solution, your solution is less complicated, more applicable and more trustworthy.

TV can’t say something relevant to everyone watching (though they think they are).
A book can’t build up enough trust with clients to hold them accountable to achieving their stated financial dreams. A talking heard can’t follow up with prospects after initial meetings via phone, e-mail or snail mail.

And neither can answer a call or text from clients when they have questions.

My hope is that you use this as ammo to keep fighting the good fight and to dare to ground people who are lead into the clouds by famous “experts” and dropped without a parachute.

Like It Or Not, All Advisors Are Now Fiduciaries

My Comments: In my capacity as a financial planner and investment advisor, I’ve long embraced a fiduciary standard. This means I’m bound morally, ethically and legally to do what, in my professional opinion, is in my client’s best interests.

Corporate financial America (Wall Street in general, the insurance industry, money managers, et al) and their shills in Congress have pushed back hard as they don’t want to assume full responsibility for what their salesmen and saleswomen may say and do that is not patently illegal. If it happens to be in their client’s best interest, that’s an incidental benefit. They argue that holding them to a fiduciary standard will increase costs to the consumer. In my opinion, that is self-serving bulls@@t.

On balance, consumers will benefit from an evolution of products and services that serve their interests rather than the interest of corporate America and their shareholders. This is the same standard that applies to Certified Public Accountants, to Attorneys, to Trust Officers, to Certified Financial Planners and a few other categories. It’s long past time for it to apply to all investment advisors and other advice driven financial professionals.

Article by Roccy DeFrancesco on May 29, 2015

Recently the Department of Labor (DOL) put out a set of new proposed regulations that cover advice given to clients who have money in qualified plans and IRAs. Here is a summary of the new regs, which include some stunning fee/commission disclosure language.

Best interest of the client

I find the fact that many advisors are all up in arms about these new regs somewhat comical. Who would argue that all advisors should always give advice that’s in their client’s best interest? Apparently, some B/Ds and Series 7 licensed advisors would make such an argument, and that argument will now fail.

Al advisors are now “fiduciaries,” including insurance agents and Series 7 licensed advisors.

Under DOL’s proposed definition, any individual receiving compensation for providing advice that is individualized or specifically directed to a particular plan sponsor (e.g., an employer with a retirement plan), plan participant, or IRA owner for consideration in making a retirement investment decision is a fiduciary.

The fiduciary can be a broker, registered investment advisor, insurance agent, or other type of advisor.

A game changer?

For three years now, the writing has been on the wall when it comes to insurance agents having to obtain some kind of a securities license in order to avoid regulatory issues with the “source of funds” rule.

There are many in the industry who have advised insurance agents not to get a Series 65 license because doing so would make them a “fiduciary” and would increase their liability. I’ve strongly stated that I think this opinion is dangerous, but now with the DOL regs pertaining to assets in IRAs, my position that every insurance agent should get a Series 65 license has been greatly strengthened.

Since the DOL’s new regs state that any advisor giving advice to clients about money in their IRA is a “fiduciary,” insurance agents might as well become fiduciaries by obtaining their 65 licenses.

The new DOL regs are trying to force advisors to truly give advice that’s in their clients’ best interest. I can’t wait for the lawsuits against advisors who violate this rule. Hopefully, they will run many out of the business.

The best way to comply with these new regs is to get a 65 license and find a low drawdown/tactical money management platform to use.


It’s a new day and the time of Series 7 licensed advisors who are used to selling loaded mutual funds or insurance only licensed agents who are used to selling massive amounts of FIAs in IRAs is coming to a close.

One trick ponies (advisors who offer a limited amount of options to clients looking to protect and grow wealth in qualified plans/IRAs) are looking at lawsuits for violating the new DOL fiduciary standard regs. Advisors who plan on continuing to go after the IRA market better wake up, or the DOL may be coming to visit.

Insurance agents, you better think seriously about getting a 65 license.

For Series 7 licensed advisors, this is the excuse you need to become an independent advisor.

Americans Need Jobs, Not Populism

workplace-safety-1926My Comments: This post reflects my values about the role government should play in our society these day. Written by Jack Markell, it is long, congratulatory, somewhat self serving, but is so well articulated that I feel compelled to share it.

Another resonance for me happens when I recall the two years I lived in India as a child and compare those with my life in the US since then. The author’s ideas about personal economic security vs economic insecurity goes a long way to explain the mess many of us see today.

This comment summarizes it well: Globalization means that businesses can hire, locate, and expand anywhere in the world. And if one business seizes global opportunities and another in the same sector does not, the slow business goes the way of Radio Shack.

Jack Markell May 3, 2015

Instead of raging against a “rigged” system, Democrats should work together with business to build an economy that distributes its benefits more broadly.

In 2008, I was elected governor of Delaware. In politics, timing is everything. You can be a fantastic candidate and run in a bad year for your party and get clobbered. You can be an absolute dud and run in the right year and get the brass ring. 2008 was a good year to be a Democrat.

But beyond the political benefit, my timing was awful. A month before I took office at the depths of the Great Recession, Chrysler closed its assembly plant in Newark, my hometown. A few months after my inauguration, General Motors shuttered its plant a few miles away. That fall, Valero closed its refinery. Those three employers had represented the best opportunities for high school graduates to get middle-class jobs for decades. Within a year, all were gone.

The slide got worse. Delaware isn’t New York, but it has a critically important finance sector, which shed thousands of jobs. Even its huge poultry industry was in the middle of one of its lousy cycles. By the end of my first year in office, five percent of Delaware’s jobs vanished. My agenda was clear: My entire tenure as governor would be focused on job creation.

The real problem doesn’t fit on a placard. It doesn’t lead people to protest or “occupy” an industry.

I could have railed against the CEOs of Chrysler, GM, and Valero for pocketing bloated salaries while handing out pink slips to desperate families. I could have said that the economic system is rigged, with the deck stacked against the middle class. Certainly there were many in my party who would eagerly and loudly make such a case. It would have made for great headlines; people may have cheered. But it would’ve been a dodge. Those salaries, generous as they may have been, had nothing to do with plants closing in my state.

The real problem doesn’t fit on a placard. It doesn’t lead people to protest or “occupy” an industry. It won’t get full-throated cheers or point the way to ready made solutions. Because the economic system isn’t so much fundamentally rigged as the populists contend, as it is fundamentally, unalterably, never-to-be-the-same-again changed. And long before the financial crisis hit, Americans shrugged off this changing world.

Globalization means that businesses can hire, locate, and expand anywhere in the world. And if one business seizes global opportunities and another in the same sector does not, the slow business goes the way of Radio Shack.

Technology means far more can be produced with far fewer workers. If one business seizes the technological opportunities and another in the same sector does not, the slow business goes the way of Borders Books. Together, the forces of globalization and technology detonating simultaneously as a financial crisis hit permanently altered the landscape of the American economy—stunting wages, reducing employment security, and providing the greatest benefits to those at the top. Even today, with plenty of jobs and wealth being created again, the altered economic terrain is preventing new wealth from being broadly shared. As governor of a state in crisis, these were the truths I had to confront if Delaware was to make progress, not headlines.

Fortunately, this had been a lifelong interest of mine. When I was 17, I visited India. Getting off the bus in New Delhi, I found myself immediately surrounded by impoverished children. That visit—and my shock at what I saw—started me on a lifelong journey. I was especially struck by the dichotomy in wealth that I saw in India. It was unlike anything that I had ever experienced in the U.S. The streets seemed to be full of either successful businesspeople scurrying to work or beggars. I didn’t see much in between. Overwhelmed by what I saw, I asked family friends in New Delhi to explain what I was seeing.

Their answer included some discussion of the caste system and the barriers it created for so many Indians. But they also boiled poverty down to one main cause: a profound lack of decent jobs.

I came back to the U.S. a few months later as a freshman at Brown University resolved to change that. I decided to double major in Development Studies and Economics so I could prepare for a career in economic development. As a senior, I thought seriously about entering the Peace Corps. But my biggest takeaway from my classes: If I wanted to change things, I needed to speak the language of business.

So I embarked on a career that took me from banking to consulting to telecommunications. I loved these jobs. Thanks to my time in business and harkening back to those few depressing days in India, I had developed an overriding conviction that a good job trumps all else. When I entered public service first by serving as Delaware’s State Treasurer for ten years, I focused mostly on economic empowerment for those most in need, leading a campaign to promote the earned-income tax credit and creating the Delaware Money School.

Central to my perspective—from that first trip to India, through my work in the private sector, to my efforts as treasurer to help empower the economically disempowered, to finally returning to India nearly four decades later as governor, seeking job opportunities for Delawareans—is the synergy, rather than the contradiction, between economic growth and economic justice.

The bottom line is that private enterprise creates the primary condition for reducing poverty and want: economic growth. Governments don’t create jobs; however, government has an ability and responsibility to create a nurturing environment where business leaders and entrepreneurs want to locate and expand. What that means is that government has an active role in creating an economic environment that creates middle class success and prosperity.

The pre-recession, credit-filled boom years masked vast changes in the global economy that make recovery more difficult. Specifically, in a world where 3 billion people are looking for jobs but only 1.2 billion jobs are available, employers have more choices than ever about where to hire. And the emergence of digital technologies that displace millions of jobs and lead to rising economic insecurity is significant.

Here is the irony about the modern U.S. economy: It’s once again among the world’s strongest and getting stronger. Unemployment is down and the stock market is near record highs. But individual Americans don’t live in the aggregate and their relatively good fortune compared to other countries is of little comfort to many families across the country. Income inequality is growing worse. And when it comes to the distribution of wealth, ours is now the most unequal of all advanced economies.

And that represents perhaps the greatest challenge: Rising economic insecurity detracts from economic growth—which only compounds the problem caused by rising global competition and technology. People who are economically insecure don’t take entrepreneurial risks. And a huge number of Americans are economically insecure. Only 14 percent of Americans believe they are getting ahead. The rest feel like it’s harder to maintain a middle-class life. And only 39 percent believe their children will live better than they do.

It’s no surprise that people worry about their kids. By 2025, a significant majority of jobs are projected to require training beyond high school. Less than half of the American population has that today. 41 percent of students at four-year public colleges fail to complete their degree within six years. And 67 percent of students at community colleges fail to graduate within three years. Lots of debt coupled with no degree leads to economic insecurity.

Americans are also ill-prepared for retirement, with 40 percent over the age of 45 reporting that the Great Recession had caused them to push back their expected date of retirement.

So if the major structural forces at work in the economy include heightened global competition for jobs and huge productivity gains meaning a need for fewer workers and more economic insecurity, what’s the solution?

Too often, the right seems to think the creation of great wealth is more important than whether or not the bounties of that wealth are broadly shared. In Congress, particularly among Democrats, the rhetoric revolves around fixing a “rigged system” that causes income inequality as well as a reflexive blaming of the financial sector for America’s continued economic woes.

Yes, economic mobility isn’t as robust as it might be. And yes, the wealthy and powerful have more influence than they should. But this is certainly not a new phenomenon. The vast changes in technology and the global economy, however, are the explosive new variables in the economy.

As for the finance sector, it’s too convenient to blame bankers and Wall Street for the fifteen years of stalled middle-class wages, sub-2 percent average U.S. GDP growth, and outsourcing of millions of middle-class jobs. In my state, the finance sector is actually critical in creating middle-class jobs and a strong local economy. Where Wall Street deserves blame—like selling junky mortgages as AAA assets – it should be noted, punished, and reformed. But American capital markets are, on balance, a huge competitive advantage to the U.S. economy.

On the right, the congressional debate revolves around the sanctity and theology of the free market. Too often, the right seems to think the creation of great wealth is more important than whether or not the bounties of that wealth are broadly shared. To be fair to conservatives here at home, a growth rate beyond the meager 1.9 percent the U.S. has averaged since 2001 would benefit everyone. But as the McKinsey Global Institute wrote recently, “changes in average income will not be enough to increase demand if most of the gains accrue to individuals whose needs have already been met.” Growth is necessary, but not sufficient. The growth must lead to the wealth being more broadly distributed.

Delaware did not accept either anti-business extremism or laissez-faire dogmatism; instead, it embarked on a three-part strategy to invest in people, engage with the world and reduce the risks for those who want to take chances for a better future.

Step one was to focus on education, from infancy through college access and workforce training. Delaware has doubled the number of low-income students enrolled in early childhood education centers and improved their performance by linking funding to quality measures.

That emphasis on metrics extends to K-12 education. There should be little debate that higher standards are needed, by whatever name. (In Delaware, we call them Common Core!) The state focused on educator recruitment, training, and teacher prep. And, to prepare more students for the global economy, Delaware created language-immersion programs. Today, 1,400 Delaware kindergartners, first, and second graders learn social studies, science, and math in Spanish or Chinese. They will be fluent in a few years. The program adds schools and grade levels each year.

Many young Americans waste their potential by not even applying for college. In Delaware, taxpayers pay for every high school sophomore and junior to take the PSAT and SAT during the school day. Students don’t have to pay and don’t have to come in on the weekend, so participation rates are extraordinarily high. Delaware has partnered with the College Board, which has secured application-fee waivers to up to eight colleges for low-income students. It has also created an aggressive campaign to reach out to these students to encourage them to apply and volunteers help them with their applications, essays and financial aid. In the first year alone, hundreds more Delaware high school seniors applied and were admitted to college compared to previous years. In a state of Delaware’s size, it’s a great start.

But not every high-schooler heads to college. Plenty of jobs can be filled by individuals who have some training, but not a four-year degree. Creating more opportunities for high school students to get into the workforce and learn new skills will open other avenues for advancement. “Pathways to Prosperity” is a great model in Delaware and elsewhere.

There is more to do. But in a world in which the skilled will do well, Delaware is preparing this generation and the next to be ready to compete in a global workforce where employers have an increasing number of options for where to hire.

But simply preparing students to compete in the global economy is not enough; they need to actively embrace the opportunities it presents. Billions of new middle-class consumers are being added globally over the next 15 years and they will create trillions in new wealth outside of the United States.

While some Democrats are skeptical of the President’s effort to sign a massive trade deal with Asia, I see opportunities. U.S. exports as a share of gross domestic product are only half that of the world’s as a whole. An Asian trade agreement could lower tariffs and export barriers so businesses can gain a foothold. America could become an export giant again, not the laggard it is now. Export jobs pay well—20 percent above the average wage, according to the International Trade Commission. And the 17 most recent trade deals turned a $2 billion trade deficit in the blue-collar goods sector to a $30 billion trade surplus, according to a new report.

Government also has an important role to play in promoting trade. That means reauthorizing the State Trade Export Promotion program at a more aggressive level and providing technical assistance to small businesses that want to export. It likewise requires renewing the Export-Import Bank so exporters aren’t at a significant competitive disadvantage. Corporate tax rates need to stop providing an incentive to global businesses to do “inversions,” in which they reincorporate and invest abroad instead of at home. It also means significant promotion abroad of the benefits of investing in the U.S. The Select USA program is worthy of expansion. And it’s up to the government to attract—and retain—more skilled immigrants, who add enormous value and energy to the economy, and create jobs for American workers. That will require better immigration rules for those with high skills, including more HB-1 visas.

It’s not enough, though, simply to increase economic growth, unless its fruits are broadly shared. When Americans support each other, they maximize their individual and collective opportunities to succeed. Delaware has increased the minimum wage, invested in substance-use disorder treatment to help people get back on their feet and created strong partnerships between employers and educational institutions on skills training.

The ability of Americans to earn a decent minimum wage, to access affordable and quality health care, and to live a retirement in dignity differentiates us from so many countries where those conditions don’t exist. Failing to provide these basic supports actually cannibalizes the economy. When Americans don’t feel confident in their own financial future, they won’t spend the money that fuels the consumer-driven economy.

Growing without sharing won’t get it done. And neither will redistribution without growth.

Business icons built this understanding into their own business models. American auto pioneers insisted on paying a wage that allowed their own employees to purchase what they manufactured and assembled. Employers know that employees who are worried about losing their job because they have to take care of sick relatives are unlikely to perform at desired levels. Government policies give mothers and fathers the certainty that an on-the-job injury won’t plunge their families into poverty.

These investments should help those in the workforce attain the basic four tickets to a stable and secure middle class: a reasonable wage, a comfortable retirement befitting a lifetime of work, affordable health insurance, and enough money to save for college.

Boondoggle U

Today is Memorial Day, a day to remember and honor those who have served our country. That so many came home wounded, and so many did not come home at all, more than justifies our reverence for their contributions to our society. Born in England in 1941, I also extend my thanks to my mother, to my father and so many others in my extended family who served valiantly, both in war and in peace.

There’s talk these days about how the US should respond to the increasing threat posed by ISIS. Very few of us want us to again send troops to solve a problem that ultimately cannot be solved by troops. (Unless we want Iraq/Syria to become a US Territory like Puerto Rico.)

I’m assuming that the facts presented in the article below are true. Given my understanding of how those in the clown car we call Washington DC work, none of this should surprise me. But it re-inforces my reluctance for us to get further involved in the crap that is Iraq/Syria these days. I can’t see how anything we do is going to fundamentally change the leadership dynamics over there which is tribalism at its finest, supported by religious beliefs that by and large, we don’t share.

The point is we lost thousands of military lives, sacrificed countless civilian lives in Iraq and Afghanistan, and while some of this intervention by the U.S. and its allies was probably justified, the outcome we see today is increasingly unfavorable. The money spent is gone; the money unspent on our next overseas adventure could be much better spent here at home.

by Megan McCloskey and Vince Dixon / ProPublica, May 20, 2015

This is a story about how the U.S. military built a lavish headquarters in Afghanistan that wasn’t needed, wasn’t wanted and wasn’t ever used—at a cost to American taxpayers of at least $25 million.

From start to finish, this 64,000-square-foot mistake could easily have been avoided. Not one, not two, but three generals tried to kill it. And they were overruled, not because they were wrong, but seemingly because no one wanted to cancel a project Congress had already given them money to build.

In the process, the story of “64K” reveals a larger truth: Once wartime spending gets rolling there’s almost no stopping it. In Afghanistan, the reconstruction effort alone has cost $109 billion, with questionable results.

The 64K project was meant for troops due to flood the country during the temporary surge in 2010. But even under the most optimistic estimates, the project wouldn’t be completed until six months after those troops would start going home.

Along the way, the state-of-the-art building, plopped in Afghanistan’s Helmand province, nearly doubled in cost and became a running joke among Marines. The Pentagon could have halted construction at many points—64K made it through five military reviews over two years—but didn’t, saying it wanted the building just in case U.S. troops ended up staying. (They didn’t.)

The Pentagon brass chalked up their decisions on the project to the inherent uncertainty of executing America’s longest war and found no wrongdoing. To them, 64K’s beginning, middle and end “was prudent.”

The $25-million price tag is a conservative number. The military also built roads and major utilities for the base at a cost of more than $20 million, some of it for 64K.

Ultimately, this story is but one chapter in a very thick book that few read. The Special Inspector General for Afghanistan Reconstruction (SIGAR) routinely documents jaw-dropping waste, but garners only fleeting attention. Just like the special inspector general for Iraq did with its own reports.

With 64K, SIGAR laid bare how this kind of waste happens and called out the players by name. The following timeline is based on the inspector general’s report, supporting documents and ProPublica interviews.

Note: I found this via a FaceBook newsfeed from The Christian Left. There is too much for me to add to this post. If you are truly intersted in this, I’d much rather direct you to the source material that has great charts and timelines to help the reader understand the dimensions of this boondoggle. CONTINUE-READING

A Bumper Sticker World

My Comments: A conversation last week with an attorney friend again revealed a world which is far more complicated today than seemed possible just a few short years ago. An expert in family law, he said tens of thousands of new laws have entered the books across these United States in the last three decades. It’s impossible to know the rules we are subjected to as we travel from one state to another. What is OK in Florida may not be OK in Tennessee.

So I understand the frustration of many who argue in favor of a simpler time. Unfortunately, it’s not going to happen. My solution is to stop worrying about what might have been and instead focus on what might be. That demands some creative thinking and a semblance of recognition about what today really looks like, who the stakeholders are and what steps to take to improve the chances my grandchildren have going forward.

For me, the first step is a willingness to step outside my comfort zone. How far are you willing to step?

Philip Stephens April 23, 2015

It is easier to say that Obama never gets it right than to come up with an alternative strategy.

On one thing everyone lining up for next year’s US presidential race can agree. Barack Obama has led from behind on the global stage. The president has been shy about deploying US might, accommodating of adversaries and reticent about standing up for allies. His successor in the White House, we are to believe, will restore America’s global prestige by standing up to China, facing down Russia and sorting out the Middle East.

An old friend in Washington, a foreign policy veteran of the Reagan administration, calls this a “bumper sticker” view of the world. He is right.

The chatter in an already crowded Republican field is that 2016 will be a “foreign policy election”. Republicans fear that a buoyant economy will narrow the range of domestic targets. National security offers obvious opportunities. The march across Syria and Iraq of the self-styled Islamic State of Iraq and the Levant has revived fears of new attacks on the US. Mr. Obama’s proposed deal with Iran falls short of the scrapping of Tehran’s nuclear program. Russia’s Vladimir Putin is menacing America’s European allies.

The 2016 hopefuls are as hawkish as they are inexperienced in foreign affairs. Jeb Bush, Marco Rubio, Chris Christie, Ted Cruz, Scott Walker and the rest all promise to be tough-guy presidents. Even Rand Paul, who once flirted with isolationism, has hardened up the rhetoric. Mr. Bush blames Mr. Obama’s hesitations for the rise of Isis. Mr. Rubio, who marches under the old neoconservative standard of “a new American Century”, would slam the door again on Cuba. They are all against the nuclear deal with Iran.

Republican hawks are not alone. Hillary Clinton served as Mr. Obama’s secretary of state. Now she is running for the office he denied her in 2008. Admirers say she too would be more robust. Had she not argued for arming moderate Syrian rebels and for a reset of the reset with Moscow when Mr. Putin started throwing his weight around? Were she to set a “red line” there would be real consequences for those who crossed it. Mrs. Clinton, of course, is under attack from Republicans for the deaths of US diplomats in Benghazi. All the more reason to show her mettle.

Some of the criticisms of Mr. Obama’s approach to global affairs have a point. Most of them miss a bigger one.

In one respect, to say that the president has often been reluctant to throw America’s weight around is simply to describe the circumstance of his election in 2008. He inherited two wars — in Iraq and Afghanistan — and the US was losing both of them. George W Bush had tested to destruction the notion that American military power could remake the Middle East. Mr. Obama’s task was to get the troops home.

The charge against the president that half-sticks is that the imperative to end these military entanglements has encouraged him to be overcautious elsewhere. Officials who have served in the administration say he is slow to weigh the costs of inaction. Power is about perception as well as economic strength and military hardware. It is one thing to draw a tighter definition of America’s national interests; another to forget that if the US steps back in one part of the world, allies and enemies elsewhere draw their own conclusions.

The impact of Mr. Obama’s decision to allow Syrian president Bashar al-Assad to cross a red line was felt as much in east Asia as in the Middle East. China’s new assertiveness in the East and South China seas has been grounded in a calculation that the White House wants to avoid confrontation.

It is easier to say that Mr. Obama has never got it right than to come up with a strategy to tilt the balance back in the other direction. Risk-taking is not just about military force. The diplomacy with Iran has been bold. Save in the dreams of diehard neoconservatives, the US lacks the resources and political will for “generational projects” to transform the Middle East.

The Republican contenders do not want to admit that, relatively speaking, the US is weaker. You do not have to be a US declinist to observe the rising economic and military weight of China, India and others. Nor, with the end of the cold war, can foreign policy be framed as a simple fight between good and evil. Not so long ago, Republicans were talking about Islamic State as the big threat. Now the danger comes from Iran. And yet Tehran is a fierce enemy of the jihadis.

The neat lines drawn by the contest with communism have disappeared. The new international disorder is being defined at once by the return of great power rivalry — think of China and Russia — and, paradoxically, by the collapse of the post-imperial state system in the Middle East. The US remains the most powerful nation but, on its own, it is insufficient.

The case for Mr. Obama is that in seeking to deploy economic and diplomatic power, and to leverage US influence through multinational coalitions, he has recognized the complexities of this new landscape. The case against is that he has sometimes gone too far in drawing the limits of US power.

What has been missing is an overarching framework — a set of principles clear and practical enough to deter adversaries and to reassure allies. A grand strategy, in other words, that balances ambition and realism. Republicans used to have a reputation for such thinking. Now they prefer bumper stickers.

Dog Days of the U.S. Expansion

moneyMy Comments: How is your money growing? Is it growing? Do you care? Are you prepared for pain when it stops growing and shrinks, perhaps dramatically?

As a professional in this world, I’ve long since given up worrying about this. All anyone can do is pay attention, or pay someone to pay attention for you. But it’s NOT different this time, and some of us will get hammered and some of us not so much. Here’s a clue to follow.

The Kentucky Derby marks the beginning of summer, but ultimately investors must prepare for the coming winter.

May 08, 2015 Commentary by Scott Minerd, Chairman of Investments and Global CIO

Ever since I was a child, the Kentucky Derby has always been for me a symbol of the changing of seasons—winter is over, spring is in air, and, most importantly, summer is right around the corner. Back in 2009, at the time of the annual “Run for the Roses,” I wrote a memo to our clients using this analogy to explain where we are in the business cycle. The ravages of winter were over, I wrote, and we were headed for the warmth of summer with bright prospects for investors. Six years later, the summer sun continues to shine on credit and equities, but the question I am consistently asked—especially during times of heightened volatility, like this past week—is how much longer can it last?

I answered this question recently at the Milken Institute Global Conference. If the economic “summer solstice” was mid-2009, then today we are somewhere in “late-August.” The expansion is now over 70 months old and is entering its mature phase, having already exceeded the average length of prior cycles of 57 months. However, “late-August” means there still is time left in summer and room left in this expansion. The past three cycles have also been longer than normal, averaging 94 months. Additionally, growth has been abnormally sluggish in this recovery (which, as I’ve written, is a byproduct of macroprudential policy). Slower growth means the current expansion may have more headroom than is typically the case at this point in the cycle.

What can investors expect as summer draws to a close? Our view of the future is that the Federal Reserve will likely begin interest rate “liftoff” in September of this year, and will continue to tighten at a steady pace until it nears the terminal rate (or peak Fed funds rate) in the cycle. This will likely occur toward the end of 2017 or early 2018 in the range of 2.5 to 3 percent. Recent experience suggests that a recession typically occurs about a year after we reach the terminal rate. If this tightening cycle plays out as we suspect, the U.S, economy will face its next recession in late 2018 or early 2019.

While the best of the post-crisis returns are now behind us, the good news is that historically, until central banks remove the proverbial punch bowl of accommodative monetary policy, the party can continue for investors. As a matter of fact, our research shows that both the lead up to, and the first year after, the Federal Reserve begins a tightening cycle have been positive for both credit and equities. Historically, U.S. equities have returned close to 4.5 percent in the 12 months after a Fed tightening cycle begins, based on an average of the last 13 cycles, while bank loans returned an average 5.8 percent, high-yield bonds returned 3.9 percent, and investment-grade bonds returned 3.3 percent in the three cycles since 1994 (when the data for fixed-income asset classes became available). The 12 months prior to a Fed hike have proven even better for investors, with equities returning an average 16.4 percent, high-yield bonds returning 8 percent, and investment-grade bonds returning 9.9 percent.

I don’t want to sound overly bullish, however. My view is that it is prudent to start to recognize what stage of summer we are in, and to understand that long-term investors need to start planning for winter, even if winter is a couple of years away. This doesn’t mean there aren’t opportunities between here and there—the punch bowl is out, the party is still going on, and we should drink long and deep for as long as we can. The European Central Bank has told us that it won’t halt its quantitative easing program until September 2016 at the earliest, which is another positive for credit and equities, even as the Fed raises rates in the United States.

So let’s enjoy the end of this long summer party. There are still some golden, halcyon summer days ahead and it would be premature to put on our winter clothes just yet. Indeed, on the extreme end, the expansionary cycle of the early 1990s lasted over 118 months. However, when all is said and done, the easy money in this expansion has already been made and investors should be thinking about the winter to come.

Sine of the Times

200+year interest ratesMy Comments: Many of you have read my comments about interest rates lately. (Yesterday!) For many, many months, the Fed has used its powers to keep them low to encourage economic growth. Now that growth is again endemic, sooner rather than later, pressures will exist to cause interest rates to increase.

The chart at the top of this post shows interest rates in this country going back to the late 1700’s. You can expect the curve to start changing its direction soon. When that happens, you should not own many long term bonds, unless you’re happy watching your net worth decline.

Commentary by Scott Minerd, Guggenheim Partners, April 24, 2015

For the past 30 years, 10-year U.S. Treasury yields have shown a clear downward linear trend, falling from over 10 percent in 1985 to less than 2 percent today. Around this linear trend, yields have also exhibited a fairly consistent cyclical fluctuation, with the size of the fluctuation about 200 basis points from peak to trough, and with the cycle repeating every six years. This fluctuation can be thought of as a sine function, allowing us to model 10-year yields by combining the sine function with the linear trend:Chart-of-the-Week-04232015_600px

If we assume the secular, linear downward trend in yields will continue in the near term, we can predict the short-term outlook based on the model of cyclical fluctuations. This model currently shows that rates are just beginning to undershoot the linear trend, with the model predicting that rates will bottom at 0.82 percent in March 2016. What’s even more interesting is that the average actual bottom in rates has been 73 basis points lower than the model predicts, which would put rates at just 0.09 percent.

Now, I am not necessarily predicting that U.S. 10-year Treasury yields will test zero like its counterpart the German 10-year bund, which currently stands at around 16 basis points and I believe could provide negative yields at some point. What I am saying is that there are many powerful secular and fundamental forces at work that signal the risk to U.S. interest rates remains to the downside.

With Federal Reserve tightening drawing closer, the continuation of this downward trend could be called into question. However, a number of factors, including lower first quarter gross domestic product (GDP) growth, high demand from overseas investors (with yields approaching negative territory in much of Europe), and expectations of a slow liftoff by the Fed, are working to exert downward pressure on U.S. yields, thus limiting any upside in rates in the near term.

The prospect of a stronger dollar as a result of upcoming U.S. rate hikes only serves to heighten foreign demand for U.S. Treasuries. International investors are likely to seek to preempt Fed action and invest while their currency has greater relative strength. Betting against the downward trend in U.S. rates has proved to be a widow-maker trade for many years—and with fundamental and technical factors pointing to downside risks in rates in the near term, there appear to be few reasons to bet against the trend now.